For all her bold ambitions to reshape Britain’s economy in a more interventionist direction, Theresa May is unlikely to spend as much time on domestic matters as she might like.
Brexit is said to be the most fiendishly complicated task Whitehall has had to undertake since the Second World War, touching nearly every area of policy.
Nevertheless, there have already been signs that May’s government is prepared to look at savings and investment afresh. First came her critique of low interest rates at the Conservative Party conference. This probably won’t mean a change in the Bank of England’s mandate, given that her chancellor endorsed another round of QE this summer. More likely some new way to boost ordinary savers’ returns will be found.
The government’s abandonment of plans to allow pensioners to sell their annuities is also interesting. This was not unexpected, as there was evidence that many annuity holders would get a poor deal from selling on. Less positively, it does suggest the new administration is not quite so happy to let people make decisions with their own money as the last one.
Most intriguing, however, is May’s appointment of John Godfrey, formerly right-hand man to Legal & General’s chief executive Nigel Wilson, as her director of policy. Wilson is well-known for his critique of ultra-loose monetary policy and his enthusiasm for greater institutional investment in UK infrastructure (see May’s speech for the former; the government has already signalled that it’s looking at encouraging more of the latter). But assuming Godfrey and the Prime Minister share his former boss’s views, we could be set for some very radical changes to the savings and investment landscape indeed.
Going further than many of his peers, Wilson called last year for a big revamp of pensions tax relief – a “one nation, one rate” flat rate bonus on contributions of 20 per cent. Osborne, remember, did nothing to pension relief, apparently fearing a backlash from Middle England if it was cut for higher earners. May’s new focus on lower income voters could give her the confidence to replace the current system with one that looks more equitable, even if the Tory heartlands lose out.
We may also see a big change in the language around savings towards simplicity (another of Wilson’s bugbears) – and perhaps a pruning of some of the more complex products. Osborne was criticised for creating more complications than he cleared up with a succession of new Isas. The Lifetime Isa, in particular, has some worried. Enabling people to save for a deposit for a first home as well as for retirement, it risks discouraging younger people from putting aside money for later life until their 30s or even 40s, by which point it’ll be difficult for them to accumulate a pot of sufficient size to provide a reasonable income.
And if May is feeling particularly ambitious, Wilson has also called for reform to the way we fund welfare. Using the plumbing of auto-enrolment, a contribution-based system would see individuals encouraged to put money aside for when they are sick or unemployed. It sounds radical, but the perception that people are able to get something for nothing has fed into anti-welfare and anti-immigrant sentiment – and such a solution could be useful if the Prime Minister has to find some compromise on free movement during Brexit negotiations.
This is all speculation. But my suspicion is that this government will be more radical on savings and investments than many are assuming.